China's AI Chip "Manhattan Project" Challenges the West

The Rise of China's Semiconductor Ambitions

In a high-security laboratory in Shenzhen, Chinese scientists have developed a prototype machine capable of producing advanced semiconductor chips that power artificial intelligence, smartphones, and military technology. This development has been closely watched by the United States, which has spent years trying to prevent such advancements.

The prototype, completed in early 2025, is currently undergoing testing. It was built by a team of former engineers from Dutch semiconductor giant ASML who reverse-engineered the company's extreme ultraviolet lithography machines or EUVs. These machines are crucial for creating the smallest circuits on silicon wafers, making them essential for advanced chip production.

EUV machines are at the center of a technological Cold War. They use beams of extreme ultraviolet light to etch circuits that are thousands of times thinner than a human hair onto silicon wafers. This capability is currently monopolized by the West. The smaller the circuits, the more powerful the chips.

China's machine is operational and successfully generating extreme ultraviolet light, but it has not yet produced working chips. In April, ASML CEO Christophe Fouquet stated that China would need "many, many years" to develop such technology. However, the existence of this prototype suggests that China may be closer to achieving semiconductor independence than analysts anticipated.

Despite these advancements, China still faces major technical challenges, particularly in replicating the precision optical systems that Western suppliers produce. The availability of parts from older ASML machines on secondary markets has allowed China to build a domestic prototype, with the government setting a goal of producing working chips on the prototype by 2028. However, those close to the project believe a more realistic target is 2030.

China's Semiconductor Strategy

The breakthrough marks the culmination of a six-year government initiative to achieve semiconductor self-sufficiency, one of President Xi Jinping's highest priorities. While China's semiconductor goals have been public, the Shenzhen EUV project has been conducted in secret.

The project falls under the country's semiconductor strategy, which state media has identified as being run by Xi Jinping confidant Ding Xuexiang, who heads the Communist Party's Central Science and Technology Commission. Chinese electronics giant Huawei plays a key role coordinating a web of companies and state research institutes across the country involving thousands of engineers.

The people described it as China's version of the Manhattan Project, the U.S. wartime effort to develop the atomic bomb. "The aim is for China to eventually be able to make advanced chips on machines that are entirely China-made," one of the people said. "China wants the United States 100% kicked out of its supply chains."

The Role of ASML and Export Controls

Until now, only one company has mastered EUV technology: ASML, headquartered in Veldhoven, Netherlands. Its machines, which cost around $250 million, are indispensable for manufacturing the most advanced chips designed by companies like Nvidia and AMD—and produced by chipmakers such as TSMC, Intel, and Samsung.

ASML built its first working prototype of EUV technology in 2001, and told DISCOVERTREND it took nearly two decades and billions of euros in R&D spending before it produced its first commercially-available chips in 2019. "It makes sense that companies would want to replicate our technology, but doing so is no small feat," ASML told DISCOVERTREND in a statement.

Starting in 2018, the United States began pressuring the Netherlands to block ASML from selling EUV systems to China. The restrictions expanded in 2022, when the Biden administration imposed sweeping export controls designed to cut off China's access to advanced semiconductor technology. No EUV system has ever been sold to a customer in China, ASML told DISCOVERTREND.

Inside China's EUV Fab

ASML's most advanced EUV systems are roughly the size of a school bus, and weigh 180 tons. After failed attempts to replicate its size, the prototype inside the Shenzhen lab became many times larger to improve its power, according to the two people.

The Chinese prototype is crude compared to ASML's machines but operational enough for testing, the people said. China's prototype lags behind ASML's machines largely because researchers have struggled to obtain optical systems like those from Germany's Carl Zeiss AG, one of ASML's key suppliers, the two people said.

China's top research institutes have played key roles in developing homegrown alternatives, according to the two people. The Changchun Institute of Optics, Fine Mechanics and Physics at the Chinese Academy of Sciences (CIOMP) achieved a breakthrough in integrating extreme-ultraviolet light into the prototype's optical system, enabling it to become operational in early 2025, one of the people said, though the optics still require significant refinement.

Huawei's Involvement

While the EUV project is run by the Chinese government, Huawei is involved in every step of the supply chain from chip design and fabrication equipment to manufacturing and final integration into products like smartphones, according to four people familiar with Huawei’s operations.

CEO Ren Zhengfei briefs senior Chinese leaders on progress, according to one of the people. The U.S. placed Huawei on an entity list in 2019, banning American companies from doing business with them without a license.

Huawei has deployed employees to offices, fabrication plants, and research centers across the country for the effort. Employees assigned to semiconductor teams often sleep on-site and are barred from returning home during the work week, with phone access restricted for teams handling more sensitive tasks, according to the people.

Inside Huawei, few employees know the scope of this work. "The teams are kept isolated from each other to protect the confidentiality of the project," one of the people said. “They don't know what the other teams work on.”